Hertz has been hanging around downtown, looking at assets for at least the last six months.

CLEVELAND, Ohio -- A southern California company that owns office buildings across the Midwest could be the next landlord for most of the Tower City complex in downtown Cleveland.

Local real estate professionals say Hertz Investment Group of Santa Monica is negotiating to buy offices, retail and parking at Tower City. The company, which owns properties in cities including Indianapolis, Pittsburgh and Cincinnati, is a long-term investor with a track record of buying both stable assets and buildings that need some help.

But the company did not identify the would-be buyer for Skylight Office Tower, Post Office Plaza, Tower City parking and a 50 percent stake in the Avenue shopping mall just off Public Square. Forest City says it has no plans to sell Terminal Tower, the iconic skyscraper where the company maintains its headquarters.

By many accounts, Hertz is the buyer. Still, Forest City is keeping mum. A company spokesman declined to comment for this story. And a Hertz executive would neither confirm nor deny that a deal is in the works.

"At this stage, we can't comment on any of the ongoing negotiations," said Gary Horwitz, the California company's president and chief financial officer. "My preference would be to not confirm anything at this point, because I don't have anything to confirm."

A trio of real estate professionals, speaking on the condition of anonymity, confirmed that Hertz is negotiating to buy the buildings. A handful of brokers who aren't involved in the transaction said the same thing.

"We've heard rumblings that it's them, and I think that it's them," said Andrew Coleman, senior vice president at the JLL brokerage in Cleveland. "I think they're an ideal buyer for the Cleveland market.

"They're a well-established group of savvy real estate investors that, I think, are going to be an active owner," he added, "which is pretty exciting. The last thing you want somebody to do is buy a note on a building or buy a building as part of a larger portfolio sale and then just sit on it and not do anything with it."

Forest City hasn't said when the real estate sales might occur.

In a regulatory document, the company disclosed that it has signed purchase agreements for Skylight Office Tower, on West Second Street, and Post Office Plaza, on West Third Street. But those deals apparently are intertwined with the potential sale of the parking and the 50 percent stake in the mall - two transactions that are at earlier negotiation stages.

It appears that the office buildings won't change hands unless the parking and retail do, too.

Horwitz, the Hertz executive, said the company has been scouting real estate in Cleveland for six or seven years. He acknowledged that Hertz is looking at another downtown office building, the 27-story Fifth Third Center at 600 Superior Ave. "I can confirm that we have an interest in that building," Horwitz said, adding that there's no deal in place.

The emergence of a California buyer might surprise some onlookers, who expected Cleveland Cavaliers owner and Horseshoe Casino Cleveland investor Dan Gilbert to add Tower City to his downtown portfolio. Based on real estate market chatter, that is not the case.

View full sizePost Office Plaza is among the downtown Cleveland buildings that Forest City Enterprises hopes to sell.Chuck Crow, Plain Dealer file

Gilbert, the founder of Detroit-based Quicken Loans, has been on a buying spree in downtown Detroit.

Affiliates of Rock Ohio Caesars LLC, his gaming venture with Caesars Entertainment Corp., have acquired three Tower City properties - the Ritz-Carlton hotel, the 250 Huron offices under the Ritz and the Higbee Building, which houses the casino.

"I think everyone thought Gilbert was going to be the likely buyer for [Tower City], with the casino and his investment in the hotel," Coleman said. "Hertz has been hanging around downtown, looking at assets for at least the last six months. And I think they've looked at a bunch of portfolios and buildings in the market to purchase. ... I think they're going to be a phenomenal owner that's really going to invest in the properties."

David Browning, managing director of the CBRE Group Inc. brokerage in Cleveland, said the arrival of new, out-of-state players speaks to the potential in the downtown real estate market.

"Hertz is a known buyer of quality assets, and they tend to focus on second-tier, Midwestern markets," said Browning, who stopped short of identifying the company as a future owner at Tower City. "Having them come to Cleveland is a good thing."

CBRE is not involved in the Tower City deals, but the company handles leasing for Forest City at a handful of Cleveland properties.

With developers converting obsolete and half-empty office buildings into apartments, downtown office vacancies are falling. As the conversion boom continues, experts expect center-city office rental rates, long soft, to creep up. Residential projects could force some office tenants to move, creating more demand for space at relatively affordable buildings like Post Office Plaza. If that happens, there could be an upside for Hertz in the office acquisitions.

The future of the Avenue, a former high-end mall now filled with local retailers and short-term tenants, is less clear. Over the years, retail consultants and downtown investors have talked about the need for a unique, destination use - outlet stores, for example - that will help the Tower City shopping stand apart from other malls and abundant retail choices in the suburbs.

"Downtown Cleveland is clearly undergoing a period of improved dynamics, with people focused on live-work-play," Browning said. "So there's a lot of good that could happen there. You need to figure out a retail redevelopment strategy in line with that, to take advantage of the casino and the increased residential component downtown and the convention center."

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